RFS, the Blend Wall & Refinery Issues - EPRINC

Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 1

Oil Market Study Group: RFS, the Blend Wall & Refinery Issues

Ben Montalbano, Senior Research Analyst Energy Policy Research Foundation, Inc. Before the CSIS Oil Market Study Group

October 15, 2012


Blendwall Reached in 2010, RINs to be Scarce

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Conventional Biofuels 'Mandate' - Adjusted to Annual Rate - Million Gallons per Month

Fuel Ethanol Consumption - Million Gallons per Month

Peak Physical Blending Level - Adjusted to Annual Rate - Million Gallons per Month


Blending has Not Reacted to Ethanol Prod. Drop

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Weekly U.S. Refiner andBlender Net Input of FuelEthanol (Thousand Barrelsper Day)

Weekly U.S. Oxygenate PlantProduction of Fuel Ethanol(Thousand Barrels per Day)


Ethanol and MTBE


US Refinery Yields

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U.S. Refinery Yield ofKerosene-Type Jet Fuel(Percent)

U.S. Refinery Yield ofDistillate Fuel Oil (Percent)

U.S. Refinery Yield ofResidual Fuel Oil (Percent)


Yield Shift Needed to Offset 400,000 b/d of Ethanol

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Shortage of Ethanol if EthanolPlateaus 400,000 b/d

Shortage of Ethanol if EthanolPlateaus 400,000 b/d (BTUAdjusted)

Increase Gasoline Yield by 3%Raise Gasoline Production by:



Increase Gasoline Yield by 2.3%- 2000-2011 Range - RaiseGasoline Production by:

A 1.8% shift offsets the ethanol shortfall


NREL Study on Blending Economics


Crop Planting, Prices and Ethanol Use

Crop Year Alcohol for fuel

ethanol

Planted

acreage

(Million

acres)

Production

(Million

bushels)

Yield per

harvested acre

(Bushels per acre)

Weighted-average

farm price (dollars

per bushel)

2005/06 1,603.32 81.78 11,112.19 147.90 2.00

2006/07 2,119.49 78.33 10,531.12 149.10 3.04

2007/08 3,049.21 93.53 13,037.88 150.70 4.20

2008/09 3,708.89 85.98 12,091.65 153.90 4.06

2009/10 4,591.16 86.38 13,091.86 164.70 3.55

2010/11 5,021.21 88.19 12,446.87 152.80 5.18

2011/12 5,050.00 91.92 12,358.41 147.20 6.20

05/06 vs

11/12

214.97% 12.40% 11.21% -0.47% 210.00%


Corn Consumption by Sector


Biofuel Crop Use – 400,000 b/d of Ethanol

Current Net Acreage for Fuel (after DDGS 'offset'), million acres 27.51

Net Acreage for Fuel in waived RFS scenario - 400,000 bbl/d ethanol (excludes

exports), no soy-based biodiesel 9.04

Biofuel Land Use Reduction 18.47

Biofuel Land Use Reduction, % change 67.13%

% of 2011/2012 corn and soy harvested acreage not needed for biofuels 11.47%

DDGS Shortfall, Million Acres of Corn and Soy Equivalent -7.60

Net Biofuel Land Use Reduction after DDGS Shortfall 10.86

Net Biofuel Land Use Reduction after DDGS Shortfall, % 39.49%


Takeaways • For a waiver to be effective it must cover multiple years – but this is

outside of EPA’s authority • As long as obligated parties have RVOs looming, they will be inclined to blend at ~10% in order to

generate RINs for future compliance

• RFS mandates are creating distortions in fuel and food production – flexibility needed. • Must include biodiesel – soy needed for DDGS offset • Ethanol is an important part of the gasoline pool and is unlikely to drop below 5% of the gasoline

pool in a mandate free environment • At current levels ethanol is largely supporting exports rather than reducing crude oil consumption • Blendwall hinders next-gen biofuels entrance into market

• A few refiners would drop ethanol completely, others would blend at 10%, most somewhere in between. • UC Davis study submitted for EPA waiver comments found 7% blend rate given long term waiver

• Low cost RFS compliance options have been exhausted – the next compliance option for obligated parties is to export product (distillate)


RFS Mandates

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Cellulosic Advanced

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EPACT 05

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RFS, the Blend Wall & Refinery Issues - EPRINC